DBS Sales Heat Up in June

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The pace of direct-broadcast satellite system sales
continued to heat up last month, suggesting that the one-time summer doldrums may be
leaving the product category as the industry continues to mature.

At midyear, U.S. DBS-subscriber numbers had reached about
7.3 million. The households were split among market-leader DirecTv Inc. (3.755 million),
PrimeStar Inc. (2.117 million) and EchoStar Communications Corp.'s Dish Network
(1.382 million).

While PrimeStar continues to hold onto its second-place
spot in the DBS market, it still lags behind both DirecTv and Dish Network in new
acquisitions. PrimeStar netted merely 14,200 subscribers in June, compared with 80,000 for
DirecTv and 70,000 for EchoStar.

As low as PrimeStar's June numbers were, they were up
dramatically over May's net of only 5,000 after churn was taken into account. But
they were down compared with last June, when PrimeStar added 28,000 subscribers.

PrimeStar's competitors reported only upward sales
trends in June: DirecTv added 70,000 subscribers in May and 64,000 in June 1997, while
EchoStar added 57,000 subscribers in May and 45,000 in June 1997.

DirecTv has experienced record growth over year-earlier
figures each month since October, said vice president of communications Jeff Torkelson.

"We're averaging 30 percent better this year than
last year so far," Torkelson said, adding that initial activations this month
indicate a strong July, as well.

"We have no reason to think that this sales growth is
going to slow down," he added, especially considering the fact that football season
is right around the corner.

"It's going to be a real interesting fall,"
said Steve Blum, president of California-based Tellus Venture Associates. Blum isn't
quite sure yet whether sales trends have shifted and some of the seasonality is coming out
of the DBS business. If not, it could be a very strong holiday selling season, he
predicted.

Mickey Alpert, president of Washington, D.C.-based Alpert
& Associates, called the June numbers "very good and very promising for DirecTv
and EchoStar, and very ominous for PrimeStar."

Chris Sophinos, senior vice president of sales and
distribution for PrimeStar, said the company is still in a period of transition, as June
represented the third month since the company's roll-up from a partnership.

Standardizing certain business practices may have led to
additional subscriber churn, Sophinos explained.

"We've tried to consolidate our policies for the
convenience of the customers, but we've had to make some compromises, too," he
said.

"We are very committed to reducing churn,"
Sophinos said, adding that the company will announce three major initiatives to counter
churn at this week's Satellite Broadcasting & Communications Association show.

Alpert predicted that it won't be long before EchoStar
surpasses PrimeStar in market share. At that point, he said, it will become harder for
PrimeStar's cable owners to sell the business.

Barbara Sullivan, president of Denver-based B.G. Marketing
Inc., noted that EchoStar is inching "pretty darn close" to catching up with
DirecTv in terms of monthly subscriber numbers.

Sullivan predicted that EchoStar would pose an even bigger
threat to DirecTv's market dominance if it had better consumer-electronics retail
distribution.

EchoStar has begun to break into certain
consumer-electronics accounts -- most notably Sears, Roebuck & Co. -- with its
manufacturing agreements with JVC Co. of America and Philips Consumer Electronics Co. But
coming to market two years behind market-leader DirecTv has cost EchoStar some shelf space
among many larger chains that remain exclusive to DirecTv and the Digital Satellite
System.

Recent published reports have stated that DirecTv plans to
beef up its dealer-exclusivity arrangements by denying a high-definition television feed
to any retailers that carry Dish Network or PrimeStar products. A spokesman for DirecTv
denied those reports, although he did say that DirecTv will continue to provide special
incentives and support to dealers that remain loyal to DirecTv.

"That's always been their approach," said
John Reardon, president of Dish Network. "I hope that they continue to spend huge
amounts of money to maintain exclusivity, because it drives up their cost of
distribution."

Reardon said EchoStar's independent dealer base
"helps Dish Network to capture over 30 percent of the market each month."

EchoStar recently rewarded the 750 dealers who attended a
"Team Summit" at its headquarters with framed, special-edition shares of company
stock. EchoStar does not give exclusivity bonuses to its dealers, Reardon said, because it
wants a consistent program among all of its dealers.

"There is an incredible bond between the independent
dealer and Dish Network," Reardon said. "There's no loyalty among
[consumer-electronics] dealers; it's all a matter of numbers."

Blum agreed that the average consumer-electronics dealer
carrying DSS exclusively would consider EchoStar or PrimeStar if either made a better
offer. But many dealers don't want to add a second DBS platform because they're
afraid that doing so will complicate the sales process.

Terry Williams, senior buyer for DSS products at Best Buy,
which is committed to carrying DSS exclusively through the rest of the year, believes that
if a dealer presents too many choices to a consumer, "you give them more chances to
leave the store to think about it."

Blum said it's not just the DBS sale that an
electronics store is concerned about losing: It's also the big-screen TV and high-end
audio system that often goes along with it.

But not all top retailers share Best Buy's reluctance
to market multiple DBS platforms. RadioShack, for example, carries both DSS and PrimeStar.

"PrimeStar is a wonderful partner for us," said
Rick Borinstein, senior vice president of merchandising at RadioShack. "We think that
there's an advantage to offering choice to the consumer."

But when asked if RadioShack plans to extend that choice by
carrying Dish Network products, Borinstein replied, "With three, it gets
confusing."

Sears carries both DSS and Dish Network. According to vice
president and general manager Chuck Cebuhar, both platforms are selling almost equally
well.

"My feeling is: Let's offer both and let the
customer choose," Cebuhar said. "The marketplace will decide."

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